With the Windows 7 machine under VMWare player, did you install the VMware tools in the guest? If you did not, go into Virtual Machine at the top of the screen and choose Install VMWare Tools. Within the VM, it should appear as if a cd was inserted and you can run setup and install the tools.
You could use the standalone VMWare Converter application to capture your XP or Windows 7 physical machine and convert it into a virtual machine. This would require another machine however to run the converter onto and capture the resulting vmdk file.